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Allen Veve, left, and Warren Plummer, who help run the presses at the Times Union, look over their work. As circulation declines nationwide, the Albany-area paper is investing $60 million in a building expansion and new press.

It may seem odd that the Times Union is building a 66,000-square-foot addition to its Colonie offices when the newspaper industry is in a state of decline.

Nationally, paid circulation is at a 62-year low, after dipping 3.5 percent in the six months ended March 30. Advertising revenue fell 9.6 percent in 2007, and many indicators point to a worse 2008. In the first quarter, ad revenue dropped 14 percent. In response, papers across the country, and locally, have cut jobs.

Changing lifestyles, alternative news sources, rising costs and the troubled economy have come together to challenge an industry once considered a cash cow.

And yet, the Times Union, the area's largest daily, is investing $60 million in a building expansion and new press.

Publisher Mark Aldam said this is not a denial of the industry's problems, but a response to them. All newspapers, he said, need to diversify. One of the Times Union's plans is to go after commercial printing business.

The paper also has created a search engine marketing firm, introduced a lifestyle magazine, struck a distribution deal with two rivals, and enhanced its Web site.

"You first have to confront reality," Aldam said. "And then you have to figure out what to do with it."

First, the bad news

The reality is rather grim.

"I've been doing this for 28 years and this is as challenging as I have ever seen it," said Daniel Beck, general manager of The Daily Gazette in Schenectady.

Circulation nationally has declined or held flat every year since 1988, losing 20 percent in that period, according to the Newspaper Association of America. Experts have pointed to busier lifestyles, tighter budgets, telemarketing laws that have restricted subscription sales efforts, and the growth of Internet and cable news.

Since 2003, the Times Union, Gazette and five other area papers for which comparative figures are available had a combined circulation loss of more than 12 percent.

Surveys show that overall readership is up, if Web sites are included. Publishers have poured resources into their Web editions to keep up with a society that expects to find news online, for free.

But Web sites can pull from paid circulation. And while online advertising is growing, it is not making up for losses on the print side. NAA figures show that while print advertising fell by $4.5 billion in 2007, newspaper Web advertising increased by only $400 million.

Print classifieds took the biggest drop, falling 16.5 percent in 2007. Much of this activity moved to Internet sites such as Craigslist. The real estate and automotive categories have been particularly hard hit by the economy. Banks, retailers and other traditional display advertisers also are holding back.

Aldam declined to provide figures, but said the Times Union's ad revenue is "worse than our planned expectations."

"The question is, are we squeezing out what newspapers were destined to lose to the Internet anyway, but sooner than we would have because of the economy?" he asked. "In the past, we could look forward to ad revenue returning when the economy bounced back. But will it this time, with so many new media options out there?"

Meanwhile, newsprint prices have risen. One source put the price of one grade of newsprint at $743 per metric ton, up from $688 in May. Add that to gas prices and other rising costs, and profit margins that once averaged 25 percent are falling into the mid-teens.

"Newspapers are in transition," said John Kimball, chief marketing officer for the NAA. "Their business model is based on one reality, but we are dealing with another reality. How do you get your arms around the new business model?"

A new model

Many newspapers began by trimming costs. More than 3,600 newspaper jobs have been cut this decade, through the end of 2007, and the pace has accelerated. Cuts, to name a few, include 150 at Newsday; 1,400 at McClatchy, which owns the Miami Herald, Sacramento Bee and 28 others; 130 at the Boston Herald, etc. In June, The Hartford Courant announced 57 cuts--or 25 percent of the newsroom.

Locally, the Times Union accepted buy-outs from 25 employees and laid off six production workers. The Gazette laid off six in June, following a 12-person cut a year earlier. It also has reduced its staff through attrition over the past few years, and actually employs half the people it did a decade ago.

The Gazette, however, has kept its bureaus, which are in Albany, Amsterdam, Mechanicville, Saratoga Springs, Cobleskill, Ballston Spa, Clifton Park and Gloversville.

"That is where we tend to be seeing growth--in suburbia, out west and up north, while circulation is declining a bit in our home county," Beck said.

Some papers, including the New York Post, The Wall Street Journal, and the Troy Record--which went from the more traditional broadsheet to tabloid in 2005--shrank physically to cut newsprint costs. Stock tables, TV listings and other features have disappeared. Outsourcing also has become more popular. In June, California's Orange County Register said it was sending copy-editing duties to India.

What some papers see as a way to save, others see as a revenue source. The Times Union recently took over distribution of the Record and The Saratogian in Saratoga Springs. Both are owned by Pennsylvania-based Journal Register Co., which lost $72 million in the first quarter.

Beck said the Gazette also is looking to strike delivery deals with other papers, possibly the Daily News and Post.

The bid to diversify the revenue stream has prompted a number of papers to turn their presses into commercial print shops. Patricia Beck, publisher of the Leader-Herald, said the Gloversville paper has increased its printing business substantially since Watervliet-based Tech Valley Printing ceased operation in April.

Daniel Beck said the Gazette started at the first of the year to market its printing services to others. The Times Union's new press will allow it to do the same.

The Times Union and The Saratogian also added lifestyle magazines in the past year. Aldam said the Times Union will introduce two more titles in the fourth quarter, but did not provide details.

"We need to come up with more targeted content for advertisers," he said.

In addition, the Times Union is helping clients hit their targets through the search engine marketing firm it introduced in June. The firm counsels clients on how to improve their chances of showing up on major search engines.

"I think all the doom and gloom news masks some really good things that are happening," said Diane Kennedy, executive director of the New York Newspaper Publishers Association, an Albany-based trade group. "It's a huge transition, but I think we'll survive. It will just be very different."

bpinckney@bizjournals.com | 518-640-6815

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